Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

 

Markets

Market scorecard as of close on Friday July 1, 2022.

Equity Indices	Level	1 week	YTD
S&P/TSX Composite	18,861	-1.1%	-11.1%
S&P 500	3,825	-2.2%	-19.7%
NASDAQ	11,128	-4.1%	-28.9%
Euro Stoxx 50	3,448	-2.4%	-19.8%
Hang Seng	21,860	0.6%	-6.6%

Source: Bloomberg, RBC Wealth Management

• The Canadian equity market continues to confront a number of headwinds, including accelerating inflation and rising interest rates, which have deepened the risk[1]off tone. Relatively defensive sectors—such as Utilities, Communication Services, and Real Estate, which generally provide average dividend yields above 4% with prospects of capital appreciation over the long term—should, in our view, continue to interest quality-oriented investors amid elevated risk aversion.

• European equities have suffered their worst H1 performance since 2008, with the STOXX Europe 600 ex UK Index down around 20% in euro terms so far this year. The significant outperformer has been the Energy sector, buoyed by higher oil and gas prices.

• UK equities have fared better than European equities so far this year. The UK’s large-cap FTSE 100 Index’s blend of high weightings in commodities-linked and traditionally defensive sectors, alongside its tiny weighting in Technology stocks, have resulted in the index producing a negative return of -1% YTD in GBP terms (-11% in USD).

 

Economy

Canada

• The housing market is generating a potential headwind for the Canadian economy. With residential real estate investment accounting for approximately 10% of nominal GDP at its most recent peak in Q4 2021, according to Statistics Canada, investors are monitoring the risks that tighter financial conditions and rising mortgage costs will depress housing activity.

• RBC Economics’ aggregate housing affordability measure, which monitors ownership costs as a percentage of median household income, has hit its worst level in over thirty years, despite recent robust wage growth. With affordability near all-time lows, there is a possibility that prospective purchasers will be reluctant to buy due to the higher cost of capital paired with still-elevated housing prices.

U.S.

• U.S. consumer confidence slipped in June to the lowest level since February 2021, according to the Conference Board’s Consumer Confidence Index, as inflation at a four-decade high and growing concerns about a possible recession weighed on Americans’ views of the economy.

• Home-price growth is beginning to ease in the U.S. after soaring more than 20% so far this year. While historically low interest rates fueled robust housing demand over the past two years, mortgage financing has become significantly more expensive as the Federal Reserve aggressively hikes rates against persistent inflation. Mortgage rates have nearly doubled since the beginning of the year; according to a Mortgage Bankers Association report released this week, the average 30-year fixed mortgage rate is now 5.84%.

Further Afield

• China announced earlier in the week that it would shorten the mandatory quarantine time for inbound travelers to seven days from 14 days, the first time the quarantine requirement has been reduced since the start of the pandemic. Investors responded positively to the announcement, as many have viewed the zero-COVID policy as a major concern for Chinese equities. One day later, however, President Xi Jinping made it clear that China intends to stick to its zero-COVID strategy.

• China’s economic recovery appears to be underway, with both the official manufacturing and non-manufacturing purchasing managers’ indexes (PMIs) above 50 amid easing lockdowns and improving supply chain dynamics. We expect the growth recovery to continue as more cities emerge from lockdowns and business activities gradually resume.

 

Notes About Companies in Model Portfolio

• Canadian Apartment Properties Real Estate Investment Trust (CAR.UN) announce on Thursday the appointment of Julian Schonfeldt as Chief Investment Officer effective in the third quarter of 2022. In this role, Mr. Schonfeldt will be responsible for leading CAPREIT’s strategic and growth initiatives, including acquisitions, dispositions, capital allocation, investment performance, and communication with key stakeholders.

• Walt Disney Company (DIS) On Tuesday the Board of Directors unanimously voted to extend Bob Chapek’s contract as Chief Executive Officer for three years. Chapek, 63, has had a nearly 30-year career at Disney. Chapek became the 7th CEO in Disney’s nearly 100-year history just weeks before the company’s theme parks and the majority of its content production was shut down due to COVID-19.

 

Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman